Thursday, October 23, 2008

VC Research - Choosing the Right Venture Investor (Part 2)

As promised, I'm publishing the strategies of VC firms today. Please note that I'm not endorsing or even remotely trying to explain the full strategies these companies are going after. I'm simply doing a quick exercise that you (entrepreneurs) can do at your desk. I also live in a small world of Boston community. For now, I am going to limit my examples to Boston-based VCs, and you can do the same with the Bay Area folks, or any other parts of the world. Moving on......

Investment Criteria:

Industry

Targeted high-growth IT

Stage

Early

Geography

Eastern United States

Capital needs

$2M to $8M initial round

CommonAngels: We invest in high-potential early-stage companies in new ares of information technology such as software, telephony, semiconductors, RFID, and medical devices not requiring clinical trials. We typically invest $500K to $1M as part of rounds up to $5M. Companies should also fit with our members' professional skills and interests.

Matrix Partners...... Our investment strategy is to invest in companies that we perceive to be on the cutting edge of creating major new markets in software, communications equipment, semiconductors, storage, Internet and wireless.... Our bi-coastal presence also gives us the ability to extend our network to capture talent throughout the country.....We approach each investment with a long-term commitment, since our goal is to build successful, independent companies - not acquisition targets.Matrix invests $10+ million over multiple rounds, with an initial investment ranging from seed amounts of $100,000-$300,000 to early-stage rounds of up to $10 million.

Highland Capital Partners.... many of Highland's limited partners are in a position to provide important business relationships to our portfolio companies. They are seasoned, long-term investors and this experience allows them to play a constructive role in building and maintaining value in your company - even after an initial public offering.... current fund: Highland Capital Partners VII(2006): $808 million and a separate Consumer Fund.

Commonwealth Capital Ventures ..... generally invests $2-$6 million initially, with up to $15 million or more per company over multiple rounds. We have made small seed investments of less than $1 million as well as later stage investments of more than $12 million. We work closely with our entrepreneurs to determine the optimal business and financial strategy, selecting what is best for sustainable growth. Our investment activity is focused on the innovation centers of the Northeast United States. We are strong believers in the value of sitting on the same side of the table with our management teams when problems or opportunities require action.

Spark Capital.... Our investment focus is on the conflux of the media, entertainment and technology industries. Over the last decade, telecom, wireless, and cable operators have spent enormous amounts of capital building up their broadband infrastructure. The next decade will be spent monetizing this infrastructure. We will exploit this opportunity by investing in companies that we believe will benefit from the rapid transformation of media and content driven by innovative technologies and evolving business models.... We are former executives of major entertainment, media, and technology companies such as Sony, Time Warner, Blockbuster, Lion's Gate, Apple, and Microsoft. While we consider ourselves stage-agnostic, no idea is too green for us.

DACE Ventures....Dace Ventures’ team seeks to invest with entrepreneurs who share our focus on digital media, consumer marketing and mobile services. We have aligned our fund strategy and team strengths to enable Dace to become the ideal investor for early-stage companies with capital-efficient business models. We have no minimum funding size, though we generally invest from $250,000 to $3 million in an initial financing, with substantial reserves for follow-on’s. We seek to work with passionate entrepreneurs who can build great teams to take best advantage of transformational forces in the Next Wave.

At all stages of a company’s lifecycle: We are well-versed in working with management teams on traditional venture investments, ranging from seed to later stage. Our team is equally adept at sophisticated deal structures such as leveraged buyouts, PIPEs, spin outs, rollups and take-privates. We can also arrange debt and are willing to do secondary transactions.

In the most interesting geographies: Because talented entrepreneurs and great companies can be found worldwide, we are active investors across the U.S. and in Canada, Israel, India, China, and Europe.

These are just some of the more obvious VC strategies from their websites. In many instances, this is how they pitched their own investors to go after particular strategies, thus spending their money accordingly. Others may not be so obvious, but you can always "ask around".

Key takeaways : understand your investor before talking to them. Some of them might sound interested in something outside their comfort zone though.

In summary, here are some parameters to differentiate venture investors.

Just because nothing's really about voracious capitalism without making a joke.... if you are trying to raise anywhere between ~$250 to $1.5M, welcome to the world of capital gap. Remember the chasm theory? Yes, you fall right into that gap.